Zhongpin: Higher revenues and net income for Q2/ Hog prices decrease

Zhongpin Inc, a meat and food processing company in the People's Republic of China, reported higher revenues and net income for the second quarter 2010 from the second quarter 2009.

Second quarter 2010 and recent highlights:

- Net sales revenues increased 33 percent in the three months ended June 30, 2010 to $215.1 million from $161.8 million in the second quarter2009.

- Net income increased 16 percent to $12.4 million in the second quarter 2010 from $10.7 million in the second quarter 2009.

- Basic earnings per share were unchanged at $0.36 per share for both second quarters on 17 percent higher basic weighted average shares outstanding. Diluted earnings per share decreased 3 percent to $0.35 in the second quarter 2010 from $0.36 in the second quarter 2009 on higher diluted weighted average shares outstanding.

- Hog and pork prices in the second quarter 2010 decreased about 10 percent from the second quarter 2009, primarily because the supply of hogs was higher than the market demand. Hog and pork prices appear to have reached bottom in mid-June, since prices have rebounded about 15 to 20 percent higher from mid-June through early August. Zhongpin believes prices will continue to increase gradually during the remainder of 2010.

Major national pork producer
"Our primary goal is to become a major national pork producer in China and, at the same time, to increase value for our shareholders.Our strategy and actions to achieve that goal can be summarized in six points.”

"First, for new markets, we determine our new major growth markets for pork based on several factors that include (a) China's Development Plan of Chinese Meat Industry, (b) market size and its potential for growth, (c) hog production in the region, and (d) the available supporting infrastructure we know is necessary for success. The financial methods we use to evaluate our potential expansions include both the payback period and the present value of future cash flows.

Second, once we have selected our new market, we simultaneously develop all the critical elements needed for success. Those include:

- good relationships with farmers for sourcing of hogs and improving hog quality;

- marketing and promotion to customers to create brand recognition and interest that will build demand for our products that coincides with the plant's opening; and

- sales contracts with retailers, wholesalers, distributors, local and chain restaurants, food services, government organizations, and we also establish our own showcase and branded stores. Often, many of these are already our customers in other regions, especially the major food stores, restaurant chains, and government organizations.

Second quarter 2010 and recent highlights:

"Third, in our existing markets, we further optimize our product structure. We work to increase the proportion of sales from prepared and processed pork products, while maintaining a large and growing percentage for chilled pork, and gradually decreasing frozen pork as percentage of sales. Frozen pork, while very good, is our lowest margin pork product. Of course, we also further expand our retail outlets and sales channels to gain more market share and higher sales.

"Fourth, we continue to apply advanced technology to our business in every prudent way possible - in our already very high quality assurance and verification, modern process engineering, integrated information technology systems, cold-chain logistics systems, and research and development for both new products and new process improvements.

"Fifth, as a very responsible company, we maximize the yield from our raw materials, maximize our energy efficiency, and minimize our waste. By yielding as much value from our raw materials as possible and by minimizing production residue, we are resource efficient and environmentally responsible.

"And sixth, our primary product is pork - chilled and frozen pork and prepared pork products. We also look for every logical extension of our primary business. For example, this year we started a new product line by opening our new premium pork oil facility.

"Another recent extension has been in our cold-chain logistics system that is known for on-time delivery of our products at the highest quality. We are expanding that system into a new commercial service. Today, we distribute food products of other companies that travel along with our own Zhongpin products in our cold-chain logistics system. That cold distribution business started as a third-party services experiment, and it is now an emerging new business for us.

"Our strategy, business model, and actions have proven to be very effective in every dimension, and we are delivering the expected good results. We expect that to continue in the future."